The government plans to relax conditions for the release of information on foreign bank account holders, the Swiss finance ministry has announced.
The move affects Switzerland’s raft of Double Taxation Agreements (DTAs) – in various stages of implementation – and is motivated by fear of being put back on an OECD (Organisation for Economic Co-operation and Development) black or grey list.
The European Commission, which welcomed the Swiss government’s announcement, is pushing for an automatic exchange of information on tax matters, arguing that it is the best way to allow different states to access taxpayers’ funds owed to them.
But Switzerland is firmly opposed to automatic exchange and is sticking to its policy of granting administrative assistance, i.e. releasing account information only in response to specific requests.
However, the current Swiss practice of requiring the foreign tax authority to supply a name and address to begin the assistance process may not go far enough, according to Swiss Finance Minister Eveline Widmer-Schlumpf.
Addressing a news conference in Bern on Tuesday, the minister said the practice could constitute an obstacle to an efficient exchange of information and land Switzerland on an OECD blacklist, something the country wished to avoid.
Therefore she is seeking a change in the detail of the DTAs to allow Swiss authorities to provide information on suspected tax evaders’ accounts, in some cases on the basis of an IBAN number alone. The IBAN, or International Bank Account Number, is an international standard for identifying bank accounts in different countries.
Despite being more of a technical rather than substantive adjustment, it is clear from the initial reactions that have flooded in from the Swiss parties that the topic is politically explosive.
The centre-right Radicals called it a “cloak and dagger” act, while the rightwing Swiss People’s Party saw it as a “salami tactic to weaken Switzerland as a financial centre” and said it would resolutely oppose the “threatening gestures from abroad”.
But for Christian Levrat, leader of the centre-left Social Democrats, the “most far-reaching administrative assistance possible is right from the point of view of both foreign policy and economic policy".
Urs Behnisch, an expert on tax law at Basel University, told swissinfo.ch that the planned new measure meant no great change.
“The basic decision was taken on March 13, 2009. That was when it was decided to provide administrative assistance,” he said.
“The question is how much information we want to demand of the foreign state requesting assistance so that Switzerland can respond without finding that it has ended up caught up in a fishing expedition."
A fishing expedition is a search for tax evaders where there are no specific grounds for suspicion. Fishing expeditions are also banned under the OECD guidelines, Behnisch explained.
"In my opinion, this change of practice will not lead to fishing expeditions. It is possible to identify someone accurately through an IBAN number, since these numbers are unique."
Neither does Behnisch see the adjustment as a first step towards the automatic exchange of information. “Automatic exchange would mean that banks would automatically disclose information about foreign tax payers. That is not the case with this change.”
The government was prompted to relax the current requirements following initial feedback from a group of experts which is examining Switzerland’s level of OECD compliance in administrative assistance.
The first phase of Switzerland’s peer review started at the end of October last year, according to a media release from the Swiss Federal Tax Administration.
“It was discovered in this context that Switzerland’s requirements for administrative assistance, which were deemed to be appropriate up to now, are too restrictive and could prove to be a possible hindrance to an effective exchange of information,” the statement said.
Widmer-Schlumpf said the DTAs approved by parliament had been negotiated “in good faith” but that the OECD standards had evolved more in recent months.
Therefore there is a fear of retaliatory measures against the Swiss finance industry or of Switzerland finding itself back on “some coloured list” of the OECD.
The colour of money
Behnisch sees the extension of Swiss cooperation in identifying tax offences as a logical step if, as announced by the government and banks, Switzerland really wants to follow a “white money strategy”.
“If we are serious about the white money strategy then there should be no outcry over this adjustment,” he said.
The IBAN condition would only apply to an estimated five per cent of cases, the finance minister said, as “ninety-five per cent of requests for assistance are based on names”.
To see this through Switzerland must get parliamentary approval for the amended DTAs, no easy task considering the enduring attachment in political circles to Swiss banking secrecy.
“We will probably put three federal resolutions before parliament,” Widmer-Schlumpf said. “One for the ten new agreements that parliament has not yet approved, one for the ten that are already in force and finally one for the agreement with the US and Singapore.”
But the issue might not end there. Federal resolutions are potentially subject to referendum so it would be theoretically possible for this question to end up before a national vote.
Austria (from March 1, 2011)
United States (accepted by Swiss parliament, US approval pending)
Awaiting parliamentary approval
United Arab Emiratesend of infobox
Banking secrecy was enshrined in Swiss law in 1934. For the past two years Switzerland has been under continuous attack for helping foreign tax evaders hide their assets.
The OECD placed Switzerland on a “grey list” of uncooperative tax havens in April 2009. The Swiss were removed in September 2010 after renegotiating more than 12 double taxation treaties, but they have refused to automatically transfer information to tax investigators without proof of crimes.
Several countries, including Italy, France, Britain and the US, launched tax amnesties last year in an effort to repatriate assets from tax cheats.
Switzerland was particularly annoyed at the aggressive Italian amnesty that saw surveillance and tailing of cross border suspects entering Switzerland.
The most damaging tax evasion case involved the activities of UBS bank in the US. In February 2009, UBS was fined $780 million after admitting helping US citizens dodge taxes. It also handed over data of 285 account holders.
In September 2010, the Swiss government agreed to transfer the details of 4,450 UBS clients to the US – in effect violating Swiss banking secrecy to prevent a ruinous court case for UBS.
(Adapted from German by Clare O’Dea), swissinfo.ch